LONDON—The euro quickly reversed early gains Thursday in volatile trade, tracking moves in European equities as volumes remained thin.
The common currency traded recently at $1.3219, down from $1.3263 late Wednesday in New York. At one stage, however, the single currency had managed to rally as far as $1.3323 before its rapid fall. The dollar was lower at 83.92 yen from 84.01 yen, while the pound weakened to $1.5767 from $1.5808.
The euro's turnaround came sharply and analysts were left searching for a reason for investors' sudden change of heart.
The move lacks a clear driver, said Daragh Maher at Credit Agricole. Mr. Maher said the pair appeared to be moving in tandem with European equities, which had come off opening highs. "The move doesn't look like it's driven by fundamentals, and investors might just be taking some risk off the table," he said. He added that as volumes are thin it doesn't take much to "get things going."
A U.K. bank trader said he had heard half a dozen reasons why the euro had fallen against the dollar. Among possible reasons were heavy selling of the euro by a large U.S. bank, a rise in bund yields, a hefty drop on Indian stock markets and dovish comments from the Reserve Bank of New Zealand.
Earlier in the day, Japan revised its third-quarter economic-growth data higher, to 4.5% from 3.9%, while Australia reported that employment increased by 54,600, much more than the 19,100 that had been expected. The figures helped boost regional stock markets and the Australian dollar, which rose to $0.9844 from $0.9795 late Wednesday.
The strong data are expected to put a question mark over just how long the Reserve Bank of Australia can leave its monetary policy on pause, said Jane Foley, currency strategist with Rabobank in London. The market is also looking for higher interest rates in China, especially if new data this weekend show that inflation has risen sharply, as expected.
In the case of the euro, analysts point to a recent rise in German bund yields, which have been under upward pressure because of fears that Germany will bear the brunt of any additional bailouts of euro-zone sovereign debtors. A rise in bund yields is generally seen as a negative for the euro.
Elsewhere, the financial markets are likely to focus on the success of the latest Treasury offering, an auction of $13 billion of 30-year bonds later in the day.
This comes ahead of the results of the latest Bank of England policy meeting. Interest rates are expected to be left unchanged but minutes of the meeting are eventually expected to show a three-way split among members, with at least one seeking a rise in interest rates and another seeking an extension of quantitative easing.
